Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?
A) Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value.
B) People measure the value of a good in terms of its purchase price.
C) Sunk costs have a higher opportunity cost than costs that can be recovered.
D) If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.
B) People measure the value of a good in terms of its purchase price.
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The prices of stocks and bonds move
a. in opposite directions to the Fed's interest rate target b. in opposite directions to the spending patterns of Congress c. in similar directions to the Fed's interest rate targets d. in similar directions to the spending patterns of Congress e. whenever the Open Market Committee threatens a change in the money supply
Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per HourComputers Per HourSmith10010Jones1206 Suppose Smith and Jones begin by producing 100 calculators per hour; as Smith and Jones choose to efficiently produce fewer computers and more calculators, ________ should devote more time to calculators because his ________.
A. Jones; absolute advantage is smaller B. Smith; opportunity costs are lower C. Smith; absolute advantage is larger D. Jones; opportunity costs are lower